Reply to: Capital introduced

[Old Greg]

I agree with the principle of limited company = separate legal identity, etc, and fully understand how these work and the reporting requirements around them - I was using non-legal terminology.

But, if I ignore the fact that I have a business for a minute; I, like most people, will choose from time to time to sell some of my private possessions. We can't be expected to treat these sales in the same way as we treat business sales? On a practical level we can't be expected to keep records for every book, record, ornament we ever buy, so it's only to be expected that if we sell them at future date that the sale price will be greater or lesser than what we paid for it? As far as I'm concerned they weren't purchased with the intention of resale, or in any way connected to a business, so any profit or loss is irrelevant as far as tax is concerned?

I appreciate that when it's a capital asset (house, shares, etc) we should declare the transaction and pay any taxes that are due.

It's an interesting question. I think you may be better finding a forum more focussed on sole traders. We're mostly IT contractors working via Ltds.

[Paralytic]

I agree with the principle of limited company = separate legal identity, etc, and fully understand how these work and the reporting requirements around them - I was using non-legal terminology.

But, if I ignore the fact that I have a business for a minute; I, like most people, will choose from time to time to sell some of my private possessions. We can't be expected to treat these sales in the same way as we treat business sales? On a practical level we can't be expected to keep records for every book, record, ornament we ever buy, so it's only to be expected that if we sell them at future date that the sale price will be greater or lesser than what we paid for it? As far as I'm concerned they weren't purchased with the intention of resale, or in any way connected to a business, so any profit or loss is irrelevant as far as tax is concerned?

I appreciate that when it's a capital asset (house, shares, etc) we should declare the transaction and pay any taxes that are due.

Even though these items were bought as personal possessions, as soon as you start selling them for a profit, I suspect HMRC would say they are being sold via your self-employed business and would have to declare that income in your SA on the basis of:


You need to set up as a sole trader if any of the following apply:

* you earned more than £1,000 from self-employment between 6 April 2019 and 5 April 2020

(from Set up as a sole trader - GOV.UK)

Also see "selling goods or services" on this page: Working for yourself - GOV.UK

So, if you have a few albums you want to sell privately, then I doubt anyone will know or care. But, if you have a collection of hundred of albums, and, outside of your self-employed business, sell these and make more than £1K in a tax year, and if HMRC came looking, I suspect they'd want to conflate the two.

Would these "private" sales be to the same market as your self-employed trading?

[interestedparty]

That's what I thought as well - the cheaply purchased collection becomes stock at the original purchase price.

The only workaround would be to sell via a limited company...

I agree with the principle of limited company = separate legal identity, etc, and fully understand how these work and the reporting requirements around them - I was using non-legal terminology.

But, if I ignore the fact that I have a business for a minute; I, like most people, will choose from time to time to sell some of my private possessions. We can't be expected to treat these sales in the same way as we treat business sales? On a practical level we can't be expected to keep records for every book, record, ornament we ever buy, so it's only to be expected that if we sell them at future date that the sale price will be greater or lesser than what we paid for it? As far as I'm concerned they weren't purchased with the intention of resale, or in any way connected to a business, so any profit or loss is irrelevant as far as tax is concerned?

I appreciate that when it's a capital asset (house, shares, etc) we should declare the transaction and pay any taxes that are due.

[eek]

Im my experience, there's no difference from a tax perspective ie. all profits are treated as profits for the individual and are recorded via the individual's self assessment.

Set up as a sole trader - GOV.UK

That's what I thought as well - the cheaply purchased collection becomes stock at the original purchase price.

The only workaround would be to sell via a limited company...

[Paralytic]

Is that right? I always thought that there is no separate identity between a sole trader and the individual. But happy to be corrected as I'v only worked via a Ltd. Interested as Mrs OG is s a sole trader.

Im my experience, there's no difference from a tax perspective ie. all profits are treated as income for the individual and are recorded via the individual's self assessment. Although, the sole-trader income could be recorded separately on that self-assessment.

Set up as a sole trader - GOV.UK

[Old Greg]

I don't think it matters that I bought the stock before I started trading as I was a genuine collector, so in that respect I'm just like any other private individual who decides to sell some of their possessions.

So I have twin identities: one as a sole trader and one as an individual - it just so happens that I'm buying (in my sole trader capacity) from myself (in my private capacity) and I don't think it matters if I make a profit as I've had the items for many, many years and they weren't purchased originally with any profit motive?

Is that right? I always thought that there is no separate identity between a sole trader and the individual. But happy to be corrected as I'v only worked via a Ltd. Interested as Mrs OG is s a sole trader.

[interestedparty]

What if you sell them to yourself (as a sole trader) and make a profit, but then sell them on to a customer for less?

The devil is in the detail of how your business operates.

You would be better to keep the items in your personal possession, but advertise them through your business. At the point of sale, the customer pays your business, your business takes a cut (enough to pay any bills, etc) and you get the rest.

Thanks for the advice - I'm thinking that it's probably cleaner, and less problematic, to keep them separate from the business :-)

[WTFH]

... I don't think it matters if I make a profit...

What if you sell them to yourself (as a sole trader) and make a profit, but then sell them on to a customer for less?

The devil is in the detail of how your business operates.

You would be better to keep the items in your personal possession, but advertise them through your business. At the point of sale, the customer pays your business, your business takes a cut (enough to pay any bills, etc) and you get the rest.

[interestedparty]

I'm curious rather than trying to offer expert advice.

If you're a sole trader, isn't everything you buy and sell private stock?

If following number 2, aren't you just saying you bought it personally 20 years back; you're now selling it personally to yourself at a profit but not paying tax on it; you're then selling it on to a third (second really) party at a small profit based on the price that you sold it to yourself? Or does it matter that you bought the stock before you registered as a sole trader?

I don't think it matters that I bought the stock before I started trading as I was a genuine collector, so in that respect I'm just like any other private individual who decides to sell some of their possessions.

So I have twin identities: one as a sole trader and one as an individual - it just so happens that I'm buying (in my sole trader capacity) from myself (in my private capacity) and I don't think it matters if I make a profit as I've had the items for many, many years and they weren't purchased originally with any profit motive?

[Old Greg]

Hi all,

I am a sole trader dealing in second hand music memorabilia.

I would like to introduce some of my own private collection as stock.

What value should I bring them in at:

1) Their original cost - this could have been 20 years ago and so could generate a large profit when sold by thew business = tax liability

2) Current market value - so likely to result in little or no profit when sold

3) Or...?


Many thanks for any advice :-)

I'm curious rather than trying to offer expert advice.

If you're a sole trader, isn't everything you buy and sell private stock?

If following number 2, aren't you just saying you bought it personally 20 years back; you're now selling it personally to yourself at a profit but not paying tax on it; you're then selling it on to a third (second really) party at a small profit based on the price that you sold it to yourself? Or does it matter that you bought the stock before you registered as a sole trader?

[wattaj]

I agree - the logical consequence of this is that stock introduced from the owner's private goods should be valued at market value minus a sensible estimate of selling costs?

It should be viewed as though you were buying stock from an independent third-party. So, yes.

[interestedparty]

Sale price should account for "cost of sales" otherwise one is running one's business into the ground.

I agree - the logical consequence of this is that stock introduced from the owner's private goods should be valued at market value minus a sensible estimate of selling costs?

[wattaj]

Thanks for your answer - I have a follow up question :-)

If I bring stock in at current market value, then this will generate a very useful cash flow boost when sold, but is also likely to trigger an accounting and tax loss as there will be selling costs incurred; Ebay commission for example.

So, I get a cash flow benefit and also a useful tax loss - this sounds very much like a win/win to me?

Sale price should account for "cost of sales" otherwise one is running one's business into the ground.

[interestedparty]

Current market value. Be able to show proof of your reasonable valuation. HTH.

Thanks for your answer - I have a follow up question :-)

If I bring stock in at current market value, then this will generate a very useful cash flow boost when sold, but is also likely to trigger an accounting and tax loss as there will be selling costs incurred; Ebay commission for example.

So, I get a cash flow benefit and also a useful tax loss - this sounds very much like a win/win to me?

[wattaj]

Current market value. Be able to show proof of your reasonable valuation. HTH.